When you make an offer to purchase real estate, you will hear the terms closing and closing costs. This can be a little confusing if this is your first real estate deal. The closing is almost a ritualistic formality where everyone associated with the real estate transaction is represented. A meeting it set up to go over the entire contract one last time and explain who is getting what and who is paying for what. The lender, the buyer, and the seller will all be there. The title company and the real estate agent who handled the deal may also be present. The closing costs are the fees associated with the real estate transaction.
The fees can be anything from the title search to ensure a clear title to the inspection fee. It actually can depend on where you are located as to who pays for what. This can also be determined by the sales contract signed between you and the seller. Many times the seller can be asked to pay all the closing costs. This would mean you do not have to pay any of the fees being charged. There are some you just will not get out of no matter how much you debate or negotiate. The appraisal is usually one of them. However most of the others can be negotiated effectively.
The seller will usually pay for things like the real estate commission and the loan payoff of his old mortgage. He can also pay for title insurance and, of course, any repairs needed on the property before possession. Any and all of these fees, except the mortgage can be a point of negotiation. This would have been done prior to closing so everyone knows what is expected of them.
The buyer will be asked to pay for the loan origination fee, property insurance, and inspections if there were any done. Depending on the area you live in the buyer may also be expected to pay the title insurance or even 50% of the transfer fees. Again, this is all something which was most likely worked out in the signing of the purchase agreement.
The typical closing costs and fees associated with buying a home are:
è Loan origination fee. This is the fee charged by the lender to make sure the loan process takes place. The typical charge is 1% of the loan. On $100,000 the loan origination fee would be $1,000.
è Discount points. This is money paid to buy down the interest rate. Each point is valued at a percentage of the interest rate. In many areas 1 to 2 points can buy down the interest rate by as much as ½ %. This can save the buyer money over the course of the loan.
è Credit report. This can range anywhere from $25 to $50 depending on your lender.
è Title search. This can range any where from $400 to $600 depending on the title company. If the buyer and seller are both getting title insurance, you can split the cost because the title company can do one search for both customers.
è Appraisal. The fee for an appraisal can be negotiated with your lender. If you know a good appraiser, you can see if he or she is acceptable to your lender. You can save money this way. Typically the fee for the appraisal is anywhere from $150 to $450.
è Premium Mortgage Insurance (PMI). The PMI can be negotiated. This is the insurance which states that a high risk loan is guaranteed against default. In other words, a lender who is giving a loan for 80% or more of the property value can charge the borrower a fee until the mortgage is paid down to under the 80% ratio. There are many changes occurring with the PMI. Most loans under $250,000 do not require it any longer.
è Recording fee. The fee to record the real estate transaction. Usually only $40 or so.
There may be other fees in your area. These are the basics. You can speak with your real estate agent and lender to get a copy of what you will be paying at your closing.
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